China’s 6.9% third-quarter GDP growth was way stronger than pretty much anyone expected. But by another measure of output, growth looks less impressive. In nominal terms, the Chinese economy only expanded 6.2% last quarter, its pokiest pace since 1999.
The actual nominal growth rate, which represents growth before adjustment for inflation, is less of a concern than an unnerving inversion: Nominal growth has dipped beneath inflation-adjusted GDP growth, implying a slight but widespread drop in prices.
Q3’s falling prices are captured in the “GDP deflator,” a broad measure of inflation that economists use to strip price changes out of nominal GDP. Without this adjustment, you can’t tell how much newly added GDP comes from producing more than last year, and how much simply comes from selling that stuff at higher prices thanks to overall inflation.
When prices are rising, the deflator adjusts GDP downward, rendering real GDP smaller than nominal GDP. The opposite happened in Q3, as Simon Cox, economist at BNY Mellon Investment Management, notes:
Text: Quartz, by Gwynnn Guilford 19-10-2015